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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
The components of the provision for income taxes for the years ended December 31 follow:
202320222021
Current:
Federal
$281.2 $72.4 $234.9 
State
108.5 81.5 67.3 
Deferred:
Federal
72.3 164.2 (34.1)
State
29.1 16.9 18.6 
Uncertain tax positions and interest and other(31.0)8.9 (3.9)
Provision for income taxes$460.1 $343.9 $282.8 
The reconciliations of the statutory federal income tax rate to our effective tax rate for the years ended December 31 follow:
202320222021
Federal statutory rate21.0 %21.0 %21.0 %
State income taxes, net of federal benefit4.4 4.6 4.5 
Non-deductible expenses1.2 1.1 1.0 
Uncertain tax position taxes and interest(0.8)0.2 0.1 
Investment tax credits(4.0)(7.6)(8.0)
Other, net(0.8)(0.5)(0.6)
Effective income tax rate21.0 %18.8 %18.0 %
During 2023, we acquired non-controlling interests in limited liability companies established to own renewable energy assets that qualified for investment tax credits under Section 48 of the Internal Revenue Code. We account for these investments using the equity method of accounting and recognize our share of income or loss and other reductions in the value of our investment in loss from unconsolidated equity method investments within our consolidated statements of income. For further discussion regarding our equity method accounting, see Note 3, Business Acquisitions, Investments and Restructuring Charges. Our 2023 tax provision reflects a benefit of $86.9 million due to the tax credits related to these investments.
In addition, during 2023 we resolved IRS examinations for our 2014 to 2018 tax years, that in the aggregate, reduced our tax provision by approximately $20.8 million.
Our 2022 tax provision was reduced by $139.0 million related to the tax credits from our non-controlling interests in limited liability companies established to own renewable energy assets.
Our 2021 tax provision was reduced by $126.0 million related to the tax credits from our non-controlling interests in limited liability companies established to own renewable energy assets.
During 2022, the Inflation Reduction Act (IRA) was signed into law. The IRA, among other things, implemented a 15% minimum tax on financial statement income of certain large corporations, a 1% excise tax on stock repurchases and extended, enhanced and created several tax incentives to promote clean energy. We continue to evaluate the IRA and additional regulations as they are released by the U.S. Treasury. At present, we do not expect the 15% minimum tax to have an impact on the Company. However, we do expect to regularly incur a non-deductible excise tax as we continue to repurchase our shares. This charge is reflected as a component of treasury stock in our consolidated balance sheet.
With respect to various energy credits in the IRA, we expect to benefit in subsequent years for credits related to commercial electric vehicles, carbon capture and renewable natural gas. Additional benefits may be identified as subsequent guidance is released by the U.S. Treasury and/or additional climate technologies are identified or advanced in future years.
We made income tax payments (net of refunds) of $343.0 million, $184.7 million and $300.4 million for 2023, 2022, and 2021, respectively. Income taxes paid in 2023, 2022, and 2021 reflect benefits from tax credits from our continuing investments in renewable energy. For 2023 and 2022 cash taxes paid also reflects benefits from bonus depreciation on qualified
assets.
The components of the net deferred income tax asset and liability as of December 31 follow:
20232022
Deferred tax liabilities relating to:
Differences between book and tax basis of property and equipment
$(1,229.4)$(1,252.7)
Difference between book and tax basis of intangible assets
(582.8)(521.7)
Operating right-of-use lease assets
(59.3)(74.3)
Basis difference due to redemption of partnership interests
(81.8)(82.0)
Total liabilities
$(1,953.3)$(1,930.7)
Deferred tax assets relating to:
Environmental reserves
$235.9 $253.0 
Accruals not currently deductible
104.6 94.6 
Net operating loss carryforwards
75.1 88.5 
Difference between book and tax basis of other assets
14.1 14.4 
Operating right-of-use lease liabilities
59.9 80.5 
Other
17.5 15.2 
Total assets
507.1 546.2 
Valuation allowance
(48.6)(43.1)
Net deferred tax asset
458.5 503.1 
Net deferred tax liabilities$(1,494.8)$(1,427.6)
Changes in the deferred tax valuation allowance for the years ended December 31 follow:
202320222021
Valuation allowance, beginning of year$43.1 $43.7 $43.8 
Additions charged to provision for income taxes3.3 1.9 0.4 
Deferred tax assets realized or written-off0.3 (6.4)0.1 
Other, net1.9 3.9 (0.6)
Valuation allowance, end of year$48.6 $43.1 $43.7 
We have deferred tax assets related to state net operating loss carryforwards. We provide a partial valuation allowance due to uncertainty surrounding the future utilization of these carryforwards in the taxing jurisdictions where the loss carryforwards exist. When determining the need for a valuation allowance, we consider all positive and negative evidence, including recent financial results, scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies. The weight given to the positive and negative evidence is commensurate with the extent such evidence can be objectively verified. We adjust the valuation allowance in the period management determines it is more likely than not that deferred tax assets will or will not be realized.
The majority of our valuation allowance is associated with state loss carryforwards. The realization of our deferred tax asset for state loss carryforwards ultimately depends upon the existence of sufficient taxable income in the appropriate state taxing jurisdictions in future periods. We continue to regularly monitor both positive and negative evidence in determining the ongoing need for a valuation allowance.
We have deferred tax assets related to state net operating loss carryforwards with an estimated tax effect of $64.5 million available as of December 31, 2023. These state net operating loss carryforwards expire at various times between 2024 and 2043. We believe that it is more likely than not that the benefit from some of our state net operating loss carryforwards will not be realized due to limitations on these loss carryforwards in certain states. In recognition of this risk, as of December 31, 2023, we have provided a valuation allowance of $43.4 million.
We are subject to income tax in the United States, as well as income tax in multiple state and foreign jurisdictions. Our compliance with income tax rules and regulations is periodically audited by tax authorities. These authorities may challenge the positions taken in our tax filings. Thus, to provide for certain potential tax exposures, we maintain liabilities for uncertain tax positions for our estimate of the final outcome of the examinations. Our federal statute of limitations is closed for 2018 through 2019 and all years prior to 2015. For tax years 2015 through 2017 we have resolved all open issues with IRS Appeals while the applicable statutes of limitation will expire in early 2024. In addition, we are currently under state examination or administrative review in various jurisdictions for tax years 2012 through 2021.
The following table summarizes the activity in our gross unrecognized tax benefits for the years ended December 31:
202320222021
Balance at beginning of year$111.0 $101.5 $101.1 
Additions for tax positions of current year1.2 7.1 — 
Additions for tax positions of prior years2.6 2.4 0.5 
Reductions for tax positions of prior years(7.5)— (0.1)
Reductions for tax positions resulting from lapse of statute of limitations(0.1)— — 
Settlements(65.7)— — 
Balance at end of year$41.5 $111.0 $101.5 
During 2023, we settled our 2014-2018 tax years with the Internal Revenue Service. These settlements reduced our gross unrecognized tax benefits by $65.7 million.
Included in our gross unrecognized tax benefits as of December 31, 2023, 2022 and 2021 are $32.5 million, $96.5 million and $93.6 million, respectively, of unrecognized tax benefits (net of the federal benefit) that, if recognized, would affect our effective income tax rate in future periods. However, we are unable to estimate the resolution of these matters over the next 12 months.
We recognize interest and penalties as incurred within the provision for income taxes in our consolidated statements of income. Related to the unrecognized tax benefits previously noted, we recorded a reduction to interest expense of $1.3 million during 2023 and, in total as of December 31, 2023, have recognized a liability for penalties of $0.3 million and interest of $13.5 million.
During 2022, we recorded interest expense of $1.1 million and, in total as of December 31, 2022, had recognized a liability for penalties of $0.3 million and interest of $15.2 million. During 2021, we recorded interest expense of $0.8 million and, in total as of December 31, 2021, had recognized a liability for penalties of $0.3 million and interest of $13.7 million.
We believe the recorded liabilities for uncertain tax positions are adequate. However, a significant assessment against us in excess of the liabilities recorded could have a material adverse effect on our consolidated financial position, results of operations and cash flows.